Cash Receipts The sales budget for Perrier Inc. is forecasted as follows: To pre

Question

Cash Receipts
The sales budget for Perrier Inc. is forecasted as follows:

To prepare a cash budget the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales: 60 percent in the month of sale. 20 percent in the month following sale. 15 percent in the second month following sale. 5 percent uncollectible. The company gives a 1 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $27,000, of which $6,000 represents uncollected March sales and $21,000 represents uncollected April sales. Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.

Explanation / Answer

Answer"

In the question Aprila & March month balance is uncollected. Since these balances are not collected hence will not come in the following months.

Here is the Cash Collection summary:

Note:

Question language is not clear whether April Months balance $21,000 & March Month Balance $6,000 is the part of 5% uncollecteble trend or it is the balance which will be collected in following months.

Since Question said that "UNCOLLECTIBLE :BALANCE" it is assumed that it shows 5% uncollecteble amount..hence will not be received and treated as bad debts..

Perrier Inc Schedule of Budgeted Cash Collection Quarterly by month May June July August Sales $100,000 $170,000 $180,000 $120,000 Collection from Customer 60% Sales are Collected in the month of sale after 1% cash discount $59,000 $100,300 $106,200 $70,800 20% Sales collected in next month of sales (i.e. May Sales are collected in June month &so on) $0 $20,000 $34,000 $36,000 15% Sales are collected in the second month following Sale (i.e. May months sale are collected in July & so on) $15,000 $25,500 5% uncollectible (it will be not shown in this schedule) $0 $0 $0 $0 Total Cash Collection $59,000 $120,300 $155,200 $132,300

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